You can expect to see froyo at ghost kitchens this year and beyond. Yogen Früz partnered with Ghost Kitchen Brands with the goal of opening 70 locations in the U.S. and 30 in Canada this year. Seeking brand growth, Brix Holdings, parent company of Orange Leaf and Red Mango, is currently in discussion with several ghost kitchen networks. According to the article in Franchise Times about Brix Holdings, “The plan is to test out potential markets through ghost kitchen expansion, both to build brand awareness, bring Brix products to more customers and to attract future franchisees, who would ideally build physical locations in markets that gain traction.”
Froyo is already available at some ghost kitchens in Asia, including Chia-yo Express and Sour Sally in Indonesia.
History of Ghost Kitchens
Ghost kitchens were around before the COVID-19 pandemic (e.g., Kitchen United was founded in 2017 in Pasadena, CA and opened their first ghost kitchen in 2018) but their growth was accelerated by the pandemic because takeout and delivery were in high demand and ghost kitchens reduced operational costs for restaurant brands.
Ghost kitchens (aka cloud kitchens or dark kitchens) are physical kitchens where restaurant brands rent space and create food for off-premise consumption. There are typically no waiters or dining rooms. Customers order online or through a third-party food delivery app like Grubhub, Postmates, and Caviar. It’s common for one ghost kitchen to host multiple restaurant brands. Interestingly, it’s not just new brands that are showing up in ghost kitchens. Even well-established brands like Arby’s, Wendy’s, Chuck E. Cheese, Chipotle, and Lemonade have used ghost kitchens to test new menu items and concepts. By using a different brand name for the new concept, the failure of the new brand is less likely to tarnish the image of the existing brand.
Ghost kitchens can operate out of existing restaurant, kitchen, or catering kitchens with existing labor. Brands rent out kitchen space and ghost kitchen chefs cook items from a variety of menus. Euromonitor estimates that ghost kitchens could reach $1 trillion in revenues by 2030. However, there are some concerns about the future of ghost kitchens, including high delivery fees that could reduce consumer demand and restaurant interest in using the delivery service, loss of foot traffic from diners in the area, and changes in diners who prefer to dine on site vs. order delivery and takeout.
Ghost kitchens are likely to be in a high-density urban area with millennials and Gen Z’ers, the two groups who order delivery the most often. The competition is increasing for ghost kitchen operators. A variety of ghost kitchen hybrids that seek to address some of the potential limitations of ghost kitchens. Some, including the original Kitchen United location, allow people to walk in to order food. Some combine food halls with ghost kitchens. Some hope to provide their own delivery drivers to reduce the dependence on third-party delivery apps.
Pros and Cons of Ghost Kitchens
The main appeal of a ghost kitchen for the restaurant operator is the lower cost of labor, equipment, rent, etc. and greater flexibility of menu items and restaurant concepts. Also, the ghost kitchen provider may handle food service regulations and restaurant inspections, cleaning, and access to technology to renters. And ghost kitchens are set up for delivery. These factors make it much easier and faster to get a virtual brand up and running, sometimes in under a month. According to US Foods, “Owners typically face $750,000 to $1.2 million in expenses to open a small restaurant in a high-demand urban area. Compared to $50,000 or so in initial fees for hiring, training and other opening costs can land a leased, fully equipped facility like those run by Kitchen United.”
For virtual restaurant brands, the challenge is to drive enough demand from delivery to become profitable. This is becoming increasingly difficult with so many restaurants on food delivery apps and the presence of brands that have considerable marketing budget and experience. Thus, well-known brands tend to do better with ghost kitchens but new brands who are strong in digital marketing can succeed.
There are other potential drawbacks for restaurant brands. The ghost kitchen may not have the equipment the concept needs. Even more troubling, brands may have less control over the quality, presentation, and packaging of their food. To mitigate this risk, menu items should be simple and easy enough for someone with minimal experience to prepare.
For consumers, ghost kitchens increase variety and convenience. They may not be aware that they are ordering from a virtual restaurant brand.
What Type of Businesses Are Best for Ghost Kitchens
Successful virtual restaurant brands have invested in building brand awareness and have a simplified menu. Frozen yogurt has been a popular choice for delivery, it’s simple to prepare, and it has a simple menu. Back in 2015, GrubHub surveyed its users and froyo was the #1 food ordered by college students. Based on these factors, frozen yogurt seems like it could succeed in a ghost kitchen. After all, ghost kitchens are just another non-traditional restaurant format that we’ve seen adopted by froyo, such as food trucks, froyo kiosks inside malls, froyo robots, and froyo at hospitals, nursing homes, cruise ships, and more.
While consumers may be concerned about melting froyo, we noticed that reviewers of froyo shops on Grubhub seem happy with their delivery (i.e., frozen yogurt did not arrive melted). To make it easier, froyo shops usually pack the froyo and toppings in separate cups and the froyo is kept frozen in the freezer. Rather than offer all the froyo flavors and toppings, the shop could just offer the most popular flavors and toppings.
As for the economics of a froyo ghost kitchen, we suggest using the ghost kitchen profitability spreadsheet developed by Dan Fleischmann, vice president at Kitchen Fund, an investment fund specializing in emerging restaurants.
